THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(amounts in thousands, except share data)
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| September 28, 2024 | | December 30, 2023 |
ASSETS | (Unaudited) | | |
CURRENT ASSETS | | | |
Cash and cash equivalents | $ | 1,053 | | | $ | 79 | |
Receivables, net of allowances for expected credit losses of $415 and $440 | 26,578 | | | 23,686 | |
Inventories, net | 76,754 | | | 76,211 | |
Prepaid and other current assets | 8,201 | | | 12,154 | |
Current assets of discontinued operations | 199 | | | 265 | |
TOTAL CURRENT ASSETS | 112,785 | | | 112,395 | |
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PROPERTY, PLANT AND EQUIPMENT, NET | 34,942 | | | 31,368 | |
OPERATING LEASE RIGHT-OF-USE ASSETS | 26,466 | | | 28,962 | |
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OTHER ASSETS | 19,125 | | | 17,130 | |
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS | 1,383 | | | 1,314 | |
TOTAL ASSETS | $ | 194,701 | | | $ | 191,169 | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
CURRENT LIABILITIES | | | |
Accounts payable | $ | 18,913 | | | $ | 13,935 | |
Accrued expenses | 17,891 | | | 16,598 | |
Current portion of long-term debt | 2,680 | | | 4,230 | |
Current portion of operating lease liabilities | 3,863 | | | 3,654 | |
Current liabilities of discontinued operations | 1,049 | | | 1,137 | |
TOTAL CURRENT LIABILITIES | 44,396 | | | 39,554 | |
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LONG-TERM DEBT, NET | 83,733 | | | 78,290 | |
OPERATING LEASE LIABILITIES | 23,221 | | | 25,907 | |
OTHER LONG-TERM LIABILITIES | 16,460 | | | 14,591 | |
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS | 3,620 | | | 3,536 | |
TOTAL LIABILITIES | 171,430 | | | 161,878 | |
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COMMITMENTS AND CONTINGENCIES (See Note 17) | | | |
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STOCKHOLDERS' EQUITY | | | |
Common Stock ($3 par value per share): Authorized 80,000,000 shares, issued and outstanding - 14,012,784 shares for 2024 and 14,409,281 shares for 2023 | 42,038 | | | 43,228 | |
Class B Common Stock ($3 par value per share): Authorized 16,000,000 shares, issued and outstanding - 1,249,302 shares for 2024 and 1,121,129 shares for 2023 | 3,748 | | | 3,363 | |
Additional paid-in capital | 159,734 | | | 159,132 | |
Accumulated deficit | (182,502) | | | (176,700) | |
Accumulated other comprehensive income | 253 | | | 268 | |
TOTAL STOCKHOLDERS' EQUITY | 23,271 | | | 29,291 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 194,701 | | | $ | 191,169 | |
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
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| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
NET SALES | $ | 64,877 | | | $ | 68,576 | | | $ | 200,638 | | | $ | 209,669 | |
Cost of sales | 48,947 | | | 50,341 | | | 149,085 | | | 153,821 | |
GROSS PROFIT | 15,930 | | | 18,235 | | | 51,553 | | | 55,848 | |
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Selling and administrative expenses | 17,561 | | | 18,743 | | | 51,309 | | | 54,195 | |
Other operating (income) expense, net | 193 | | | (147) | | | 141 | | | (313) | |
Facility consolidation and severance expenses, net | 283 | | | 552 | | | 772 | | | 2,320 | |
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OPERATING LOSS | (2,107) | | | (913) | | | (669) | | | (354) | |
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Interest expense | 1,628 | | | 1,795 | | | 4,780 | | | 5,503 | |
Other (income) expense, net | (2) | | | (622) | | | 8 | | | (634) | |
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LOSS FROM CONTINUING OPERATIONS BEFORE TAXES | (3,733) | | | (2,086) | | | (5,457) | | | (5,223) | |
Income tax provision (benefit) | (4) | | | 125 | | | 16 | | | 159 | |
LOSS FROM CONTINUING OPERATIONS | (3,729) | | | (2,211) | | | (5,473) | | | (5,382) | |
Loss from discontinued operations, net of tax | (182) | | | (183) | | | (329) | | | (496) | |
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NET LOSS | $ | (3,911) | | | $ | (2,394) | | | $ | (5,802) | | | $ | (5,878) | |
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BASIC EARNINGS (LOSS) PER SHARE: | | | | | | | |
Continuing operations | $ | (0.26) | | | $ | (0.15) | | | $ | (0.37) | | | $ | (0.36) | |
Discontinued operations | (0.01) | | | (0.01) | | | (0.02) | | | (0.04) | |
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Net loss | $ | (0.27) | | | $ | (0.16) | | | $ | (0.39) | | | $ | (0.40) | |
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BASIC SHARES OUTSTANDING | 14,455 | | | 14,824 | | | 14,733 | | | 14,769 | |
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DILUTED EARNINGS (LOSS) PER SHARE: | | | | | | | |
Continuing operations | $ | (0.26) | | | $ | (0.15) | | | $ | (0.37) | | | $ | (0.36) | |
Discontinued operations | (0.01) | | | (0.01) | | | (0.02) | | | (0.04) | |
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Net loss | $ | (0.27) | | | $ | (0.16) | | | $ | (0.39) | | | $ | (0.40) | |
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DILUTED SHARES OUTSTANDING | 14,455 | | | 14,824 | | | 14,733 | | | 14,769 | |
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DIVIDENDS PER SHARE: | | | | | | | |
Common Stock | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Class B Common Stock | — | | | — | | | — | | | — | |
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(amounts in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
NET LOSS | $ | (3,911) | | | $ | (2,394) | | | $ | (5,802) | | | $ | (5,878) | |
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OTHER COMPREHENSIVE LOSS, NET OF TAX: | | | | | | | |
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Reclassification of net actuarial gain into earnings from postretirement benefit plans (1) | (5) | | | (5) | | | (15) | | | (16) | |
Income taxes | — | | | — | | | — | | | — | |
Reclassification of net actuarial gain into earnings from postretirement benefit plans, net | (5) | | | (5) | | | (15) | | | (16) | |
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TOTAL OTHER COMPREHENSIVE LOSS, NET OF TAX | (5) | | | (5) | | | (15) | | | (16) | |
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COMPREHENSIVE LOSS | $ | (3,916) | | | $ | (2,399) | | | $ | (5,817) | | | $ | (5,894) | |
(1) Amounts for postretirement plans reclassified from accumulated other comprehensive income to net loss were included in selling and administrative expenses in the Company's consolidated condensed statements of operations.
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
| | | | | | | | | | | |
| Nine Months Ended |
| September 28, 2024 | | September 30, 2023 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Loss from continuing operations | $ | (5,473) | | | $ | (5,382) | |
Loss from discontinued operations | (329) | | | (496) | |
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Net loss | (5,802) | | | (5,878) | |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | |
Depreciation and amortization | 4,992 | | | 4,978 | |
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Net gain on property, plant and equipment disposals | (37) | | | (1) | |
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Stock-based compensation expense | 378 | | | 550 | |
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Expense for expected credit losses | 75 | | | 21 | |
Gain on extinguishment of debt | — | | | (625) | |
Changes in operating assets and liabilities: | | | |
Receivables | (2,967) | | | (3,284) | |
Inventories | (543) | | | 3,759 | |
Prepaid and other current assets | (2,577) | | | (2,020) | |
Accounts payable and accrued expenses | 5,820 | | | 6,130 | |
Other operating assets and liabilities | (165) | | | 914 | |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | (497) | | | 5,040 | |
NET CASH USED IN OPERATING ACTIVITIES - DISCONTINUED OPERATIONS | (336) | | | (1,166) | |
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CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Net proceeds from sales of property, plant and equipment | 37 | | | 29 | |
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Purchase of property, plant and equipment | (1,904) | | | (763) | |
Joint venture capital distributions | 43 | | | — | |
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NET CASH USED IN INVESTING ACTIVITIES | (1,824) | | | (734) | |
NET CASH PROVIDED BY INVESTING ACTIVITIES - DISCONTINUED OPERATIONS | — | | | 8 | |
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CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Net borrowings (payments) on revolving credit facility | 7,214 | | | (528) | |
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Payments on notes payable - buildings and other term loans | (1,390) | | | (457) | |
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Payments on notes payable - other | (2,040) | | | (1,819) | |
Payments on finance leases | (23) | | | (248) | |
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Change in outstanding checks in excess of cash | 451 | | | (242) | |
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Repurchases of Common Stock | (581) | | | (44) | |
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 3,631 | | | (3,338) | |
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 974 | | | (190) | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 79 | | | 363 | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 1,053 | | | $ | 173 | |
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SUPPLEMENTAL CASH FLOW INFORMATION: | | | |
Interest paid | $ | 4,761 | | | $ | 4,262 | |
Interest paid for financing leases | 6 | | | 8 | |
Income taxes paid, net of (tax refunds) | 157 | | | (725) | |
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Right-of-use assets obtained in exchange for new operating lease liabilities | 411 | | | 7 | |
Equipment purchased under finance lease | — | | | 133 | |
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Deposits utilized on property, plant & equipment purchases | 6,530 | | | — | |
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See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(amounts in thousands, except share data)
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| Common Stock | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Stockholders' Equity |
Balance at December 30, 2023 | $ | 43,228 | | | $ | 3,363 | | | $ | 159,132 | | | $ | (176,700) | | | $ | 268 | | | $ | 29,291 | |
Repurchases of Common Stock - 52,091 shares | (156) | | | — | | | 124 | | | — | | | — | | | (32) | |
Class B converted into Common Stock - 5,980 shares | 18 | | | (18) | | | — | | | — | | | — | | | — | |
Restricted stock grants issued - 411,537 shares | 832 | | | 403 | | | (1,235) | | | — | | | — | | | — | |
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Stock-based compensation expense | — | | | — | | | 156 | | | — | | | — | | | 156 | |
Net loss | — | | | — | | | — | | | (2,494) | | | — | | | (2,494) | |
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Other comprehensive loss | — | | | — | | | — | | | — | | | (5) | | | (5) | |
Balance at March 30, 2024 | $ | 43,922 | | | $ | 3,748 | | | $ | 158,177 | | | $ | (179,194) | | | $ | 263 | | | $ | 26,916 | |
Repurchases of Common Stock - 351,183 shares | (1,054) | | | — | | | 741 | | | — | | | — | | | (313) | |
Common Stock issued - 37,501 shares | 113 | | | — | | | (113) | | | — | | | — | | | — | |
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Restricted stock grants issued - 32,000 shares | 96 | | | — | | | (96) | | | — | | | — | | | — | |
Restricted stock grants forfeited - 21,200 shares | (64) | | | — | | | 64 | | | — | | | — | | | — | |
Stock-based compensation expense | — | | | — | | | 103 | | | — | | | — | | | 103 | |
Net income | — | | | — | | | — | | | 603 | | | — | | | 603 | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (5) | | | (5) | |
Balance at June 29, 2024 | $ | 43,013 | | | $ | 3,748 | | | $ | 158,876 | | | $ | (178,591) | | | $ | 258 | | | $ | 27,304 | |
Repurchases of Common Stock - 324,888 shares | (975) | | | — | | | 739 | | | — | | | — | | | (236) | |
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Stock-based compensation expense | — | | | — | | | 119 | | | — | | | — | | | 119 | |
Net loss | — | | | — | | | — | | | (3,911) | | | — | | | (3,911) | |
Other comprehensive loss | — | | | — | | | — | | | — | | | (5) | | | (5) | |
Balance at September 28, 2024 | $ | 42,038 | | | $ | 3,748 | | | $ | 159,734 | | | $ | (182,502) | | | $ | 253 | | | $ | 23,271 | |
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| Common Stock | | Class B Common Stock | | Additional Paid-In Capital | | Accumulated Deficit | | Accumulated Other Comprehensive Income | | Total Stockholders' Equity |
Balance at December 31, 2022 | $ | 43,360 | | | $ | 3,388 | | | $ | 158,331 | | | $ | (173,784) | | | $ | 219 | | | $ | 31,514 | |
Repurchases of Common Stock - 55,994 shares | (168) | | | — | | | 124 | | | — | | | — | | | (44) | |
Class B converted into Common Stock - 8,029 shares | 25 | | | (25) | | | — | | | — | | | — | | | — | |
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Stock-based compensation expense | — | | | — | | | 197 | | | — | | | — | | | 197 | |
Net loss | — | | | — | | | — | | | (1,758) | | | — | | | (1,758) | |
Cumulative effect of CECL adoption | — | | | — | | | — | | | (198) | | | — | | | (198) | |
Other comprehensive income | — | | | — | | | — | | | — | | | (5) | | | (5) | |
Balance at April 1, 2023 | $ | 43,217 | | | $ | 3,363 | | | $ | 158,652 | | | $ | (175,740) | | | $ | 214 | | | $ | 29,706 | |
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Restricted stock grants issued - 40,000 shares | 120 | | | — | | | (120) | | | — | | | — | | | — | |
Restricted stock grants forfeited - 10,167 shares | (31) | | | — | | | 31 | | | — | | | — | | | — | |
Stock-based compensation expense | — | | | — | | | 171 | | | — | | | — | | | 171 | |
Net loss | — | | | — | | | — | | | (1,726) | | | — | | | (1,726) | |
Other comprehensive income | — | | | — | | | — | | | — | | | (6) | | | (6) | |
Balance at July 1, 2023 | $ | 43,306 | | | $ | 3,363 | | | $ | 158,734 | | | $ | (177,466) | | | $ | 208 | | | $ | 28,145 | |
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Stock-based compensation expense | — | | | — | | | 182 | | | — | | | — | | | 182 | |
Net loss | — | | | — | | | — | | | (2,394) | | | — | | | (2,394) | |
Other comprehensive income | — | | | — | | | — | | | — | | | (5) | | | (5) | |
Balance at September 30, 2023 | $ | 43,306 | | | $ | 3,363 | | | $ | 158,916 | | | $ | (179,860) | | | $ | 203 | | | $ | 25,928 | |
See accompanying notes to the consolidated condensed financial statements.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial statements which do not include all the information and notes required by such accounting principles for annual financial statements. In the opinion of management, all adjustments (generally consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the accompanying financial statements. The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in The Dixie Group, Inc.'s and its wholly-owned subsidiaries (the "Company") 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 30, 2023. Significant intercompany accounts and transactions have been eliminated in consolidation. The balance sheet as of December 30, 2023 has been derived from the audited financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. Operating results for the three and nine month periods ended September 28, 2024 are not necessarily indicative of the results that may be expected for the entire 2024 year.
Based on applicable accounting standards, the Company has determined that it has one reportable segment, Floorcovering. The Company's Floorcovering products have similar economic characteristics and are similar in all of the following areas: (a) the nature of the products and services; (b) the nature of the production processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their products or provide their services; and (e) the nature of the regulatory environment.
The consolidated condensed financial statements separately report discontinued operations and the results of continuing operations. Unless specifically noted otherwise, footnote disclosures reflect the results of continuing operations only. The results of discontinued operations are presented in Note 20.
Variable Interest Entities
The Company determines at the inception of each arrangement whether an entity in which it has made an investment or in which the Company has other variable interests is considered a variable interest entity (“VIE”). The Company consolidates VIEs when it is the primary beneficiary. The Company is the primary beneficiary of a VIE when it has the power to direct activities that most significantly affect the economic performance of the VIE and have the obligation to absorb the majority of their losses or benefits. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment or other variable interests in a VIE in accordance with applicable GAAP. At each reporting period, the Company assesses whether any changes in our interest or relationship with the entity affect our determination of whether the entity is a VIE and, if so, whether the Company is the primary beneficiary.
The Company entered into an arrangement to pool extrusion machinery whereby the Company and an independent entity, "the entity", separately purchased machinery to concurrently produce fiber to reduce manufacturing costs. The entity purchases the raw materials, employs the staff and owns and manages the facility and the production of the fiber. The Company receives all fiber produced on its own machines and pays the entity an amount equal to the cost of raw materials and an agreed upon allocation of direct and indirect production and overhead costs of the fiber operations. The Company accounts for all amounts paid to the entity as the cost of raw material inventory.
During the second quarter of 2024, the Company determined that the entity is a VIE and the Company's arrangement represents a variable interest in the entity. The Company has determined that the governance and operating structures of this VIE do not allow it to direct the activities that would significantly affect the entity's economic performance. In addition, the Company does not have an obligation to absorb losses of the entity. Therefore, the Company is not the primary beneficiary, and the results of operations and financial position of this VIE are not included in the Company's consolidated condensed financial statements. The Company believes its maximum exposure of this unconsolidated VIE is the current carrying value of the equipment at the entity's location. The carrying value and maximum exposure of this unconsolidated VIE was $7,507 as of September 28, 2024, and is included within property, plant and equipment, net on the Company’s consolidated condensed balance sheets. Any additional potential losses cannot be determined.
Nasdaq Delisting Notification or Failure to Satisfy a Continued Listing Rule or Standard
Effective at the opening of business on October 3, 2024, the Company's Common Stock was suspended and delisted from Nasdaq and began trading on the Over-the-Counter Market pink sheets under the stock symbol DXYN. Effective October 4, 2024, the Company was upgraded to the Over-the-Counter OTCQB Market ("the OTCQB") trading under the same symbol DXYN.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data)
Reclassifications
The Company reclassified certain amounts in 2023 in the consolidated condensed statements of cash flows and Note 10 Leases to conform to the 2024 presentation. In 2023, the Company included its failed sales and leaseback transactions in its lease footnote with a note indicating they were included. In 2024, the Company included these transactions in its debt footnote and reclassified amounts in the comparative 2023 period.
NOTE 2 - RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Standards Yet to Be Adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which enhances reporting requirements under Topic 280. The enhanced disclosure requirements include: title and position of the Chief Operating Decision Maker (CODM), significant segment expenses provided to the CODM, extending certain annual disclosures to interim periods, clarifying single reportable segment entities must apply ASC 280 in its entirety, and permitting more than one measure of segment profit or loss to be reported under certain circumstances. This change is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. This change will apply retrospectively to all periods presented. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740), which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The new guidance requires consistent categorization and greater disaggregation of information in the rate reconciliation, as well as further disaggregation of income taxes paid. This change is effective for annual periods beginning after December 15, 2024. This change will apply on a prospective basis to annual financial statements for periods beginning after the effective date. However, retrospective application in all prior periods presented is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
NOTE 3 - REVENUE
Revenue Recognition Policy
The Company derives its revenues primarily from the sale of floorcovering products and processing services. Revenues are recognized when control of these products or services is transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products and services. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue. When the Company transfers control of its products to the customer prior to the related shipping and handling activities, the Company has adopted a policy of accounting for shipping and handling activities as a fulfillment cost rather than a performance obligation. Incidental items that are immaterial in the context of the contract are recognized as expense. While the Company pays sales commissions to certain personnel, the Company has not capitalized these costs as costs to obtain a contract as the Company has elected to expense costs as incurred when the expected amortization period is one year or less. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. The Company determined revenue recognition through the following steps:
•Identification of the contract with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, the performance obligation is satisfied
Disaggregation of Revenue from Contracts with Customers
The following table disaggregates the Company’s revenue by end-user markets for the three and nine month periods ended September 28, 2024 and September 30, 2023:
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| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
Residential floorcovering products | $ | 63,931 | | | $ | 67,659 | | | $ | 197,836 | | | $ | 206,515 | |
Other services | 946 | | | 917 | | | 2,802 | | | 3,154 | |
Total net sales | $ | 64,877 | | | $ | 68,576 | | | $ | 200,638 | | | $ | 209,669 | |
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Residential floorcovering products. Residential floorcovering products include broadloom carpet, rugs, luxury vinyl flooring and engineered hardwood. These products are sold into the designer, retailer, mass merchant and builder markets.
Other services. Other services include carpet yarn processing and carpet dyeing services.
Contract Balances
Other than receivables that represent an unconditional right to consideration, which are presented in Note 4, the Company does not recognize any contract assets which give conditional rights to receive consideration, because the Company does not incur costs to obtain customer contracts that are recoverable. The Company often receives cash payments from customers in advance of the Company’s performance for limited production run orders resulting in contract liabilities. These contract liabilities are classified in accrued expenses in the consolidated condensed balance sheets based on the timing of when the Company expects to recognize revenue, which is typically less than a year. The net decrease or increase in the contract liabilities is primarily driven by order activity for limited runs requiring deposits offset by the recognition of revenue and the application of deposit on the receivables ledger for such activity during the period. The activity in the advanced deposits for the three and nine month periods ended September 28, 2024 and September 30, 2023 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
Beginning contract liability | $ | 758 | | | $ | 1,034 | | | $ | 966 | | | $ | 1,055 | |
Revenue recognized from contract liabilities included in the beginning balance | (466) | | | (742) | | | (797) | | | (862) | |
Increases due to cash received, net of amounts recognized in revenue during the period | 528 | | | 785 | | | 651 | | | 884 | |
Ending contract liability | $ | 820 | | | $ | 1,077 | | | $ | 820 | | | $ | 1,077 | |
Performance Obligations
For performance obligations related to residential floorcovering products, control transfers at a point in time. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer and the customer must have the significant risks and rewards of ownership. The Company’s principal terms of sale are FOB Shipping Point and FOB Destination and the Company transfers control and records revenue for product sales either upon shipment or delivery to the customer, respectively. Revenue is allocated to each performance obligation based on its relative stand-alone selling prices. Stand-alone selling prices are based on observable prices at which the Company separately sells the products or services.
Variable Consideration
The nature of the Company’s business gives rise to variable consideration, including rebates, allowances, and returns that generally decrease the transaction price, which reduces revenue. These variable amounts are generally credited to the customer, based on achieving certain levels of sales activity, product returns, or price concessions.
Variable consideration is estimated at the most likely amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are estimated based upon historical experience and known trends.
Warranties
The Company generally provides product warranties related to manufacturing defects and specific performance standards for its products for a period of up to two years. The Company accrues for estimated future assurance warranty costs in the period in which the sale is recorded. The costs are included in cost of sales in the consolidated condensed statements of operations and the product warranty reserve is included in accrued expenses in the consolidated condensed balance sheets. The Company calculates its accrual using the portfolio approach based upon historical experience and known trends. The Company does not provide an additional service-type warranty. (See Note 8.)
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 4 - RECEIVABLES, NET
The Company grants credit to its customers with defined payment terms, performs ongoing evaluations of the credit worthiness of its customers and generally does not require collateral. Accounts receivable are carried at their outstanding principal amounts, less an anticipated amount for discounts and an allowance for expected credit losses, which management believes is sufficient to cover potential credit losses based on historical experience and periodic evaluation of the financial condition of the Company's customers. The Company's allowance for expected credit losses is computed using a number of factors including past credit loss experience and the aging of amounts due from our customers, in addition to other customer-specific factors. The Company also considered recent trends and developments related to the current macroeconomic environment such as unemployment rates, interest rates and inflation in determining its ending allowance for credit losses for accounts receivable. If the financial condition of the Company's customers were to deteriorate, resulting in a change in their ability to make payments, or additional changes in macroeconomic factors occur, additional allowances may be required. Receivables are summarized as follows:
| | | | | | | | | | | |
| September 28, 2024 | | December 30, 2023 |
Customers, trade | $ | 25,911 | | | $ | 22,461 | |
Other receivables | 1,082 | | | 1,665 | |
Gross receivables | 26,993 | | | 24,126 | |
Less: allowance for expected credit losses (1) | (415) | | | (440) | |
Receivables, net | $ | 26,578 | | | $ | 23,686 | |
(1)The Company recognized an expense to the provision for expected credit losses of $1 and $75 and recognized write-offs, net of recoveries of $40 and $100 for the three and nine months ended September 28, 2024, respectively. The Company recognized an expense to the provision for expected credit losses of $49 and $21 and recognized write-offs, net of recoveries of $21 and $82 for the three and nine months ended September 30, 2023, respectively.
NOTE 5 - INVENTORIES, NET
Inventories are summarized as follows:
| | | | | | | | | | | |
| September 28, 2024 | | December 30, 2023 |
Raw materials | $ | 24,622 | | | $ | 24,368 | |
Work-in-process | 11,767 | | | 12,275 | |
Finished goods | 62,976 | | | 60,553 | |
Supplies and other | 94 | | | 112 | |
LIFO reserve | (22,705) | | | (21,097) | |
Inventories, net | $ | 76,754 | | | $ | 76,211 | |
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
| | | | | | | | | | | |
| September 28, 2024 | | December 30, 2023 |
Land and improvements | $ | 3,402 | | | $ | 3,402 | |
Buildings and improvements | 41,578 | | | 41,484 | |
Machinery and equipment | 163,477 | | | 155,312 | |
Assets under construction | 576 | | | 574 | |
| 209,033 | | | 200,772 | |
Accumulated depreciation | (174,091) | | | (169,404) | |
Property, plant and equipment, net | $ | 34,942 | | | $ | 31,368 | |
Depreciation of property, plant and equipment, including amounts for finance leases, totaled $1,688 and $4,860 in the three and nine months ended September 28, 2024, respectively and $1,684 and $4,832 in the three and nine months ended September 30, 2023, respectively.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 7 - ACCRUED EXPENSES
Accrued expenses are summarized as follows:
| | | | | | | | | | | |
| September 28, 2024 | | December 30, 2023 |
Compensation and benefits | $ | 5,945 | | | $ | 5,720 | |
Provision for customer rebates, claims and allowances | 6,504 | | | 6,199 | |
Advanced customer deposits | 820 | | | 966 | |
Outstanding checks in excess of cash | 895 | | | 444 | |
Other | 3,727 | | | 3,269 | |
Accrued expenses | $ | 17,891 | | | $ | 16,598 | |
NOTE 8 - PRODUCT WARRANTY RESERVES
The Company generally provides product warranties related to manufacturing defects and specific performance standards for its products. Product warranty reserves are included in accrued expenses in the Company's consolidated condensed balance sheets. The following is a summary of the Company's product warranty activity for continuing operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
Product warranty reserve at beginning of period | $ | 653 | | | $ | 850 | | | $ | 735 | | | $ | 942 | |
Warranty liabilities accrued | 131 | | | 177 | | | 506 | | | 558 | |
Warranty liabilities settled | (164) | | | (233) | | | (621) | | | (706) | |
| | | | | | | |
Product warranty reserve at end of period | $ | 620 | | | $ | 794 | | | $ | 620 | | | $ | 794 | |
NOTE 9 - LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
| | | | | | | | | | | |
| September 28, 2024 | | December 30, 2023 |
Revolving credit facility | $ | 54,834 | | | $ | 47,619 | |
Term loans | 22,485 | | | 23,875 | |
| | | |
Notes payable - other | 10,260 | | | 12,300 | |
| | | |
Finance lease obligations | 108 | | | 131 | |
Deferred financing costs, net | (1,274) | | | (1,405) | |
Total debt | 86,413 | | | 82,520 | |
Less: current portion of long-term debt | 2,680 | | | 4,230 | |
Long-term debt | $ | 83,733 | | | $ | 78,290 | |
Revolving Credit Facility
On October 30, 2020, the Company entered into a $75,000 Senior Secured Revolving Credit Facility with Fifth Third Bank National Association as lender. The loan is secured by a first priority security interest on all accounts receivable, cash, and inventory, and provides for borrowing limited by certain percentages of values of the accounts receivable and inventory. The revolving credit facility matures on October 30, 2025.
At the Company's election, advances of the revolving credit facility bear interest at annual rates equal to either (a) SOFR (plus a 0.10% SOFR adjustment) for 1 or 3 month periods, as defined with a floor of 0.75% or published SOFR, plus an applicable margin ranging between 1.50% and 2.00%, or (b) the higher of the prime rate plus an applicable margin ranging between 0.50% and 1.00%. The applicable margin is determined based on availability under the revolving credit facility with margins increasing as availability decreases. The applicable margin can be increased by 0.50% if the fixed charge coverage ratio is below a 1.10 to 1.00 ratio. As of September 28, 2024, the applicable margin on the Company's revolving credit facility was 2.50% for SOFR and
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
1.50% for Prime due to the fixed charge coverage ratio being below 1.10 to 1.00. The Company pays an unused line fee on the average amount by which the aggregate commitments exceed utilization of the revolving credit facility equal to 0.25% per annum. The weighted-average interest rate on borrowings outstanding under the revolving credit facility was 7.93% at September 28, 2024 and 8.15% at December 30, 2023.
The agreement is subject to customary terms and conditions and annual administrative fees with pricing varying on excess availability and a fixed charge coverage ratio. The agreement is also subject to certain compliance, affirmative, and financial covenants. The Company is only subject to the financial covenants if borrowing availability is less than $8,832, which is equal to 12.5% of the lesser of the total loan availability of $75,000 or total collateral available, and remains until the availability is greater than 12.5% for thirty consecutive days. As of September 28, 2024, the unused borrowing availability under the revolving credit facility was $11,716.
Term Loans
Effective October 28, 2020, the Company entered into a $10,000 principal amount USDA Guaranteed term loan with AmeriState Bank as lender. The term of the loan is 25 years and bears interest at a minimum 5.00% rate or 4.00% above 5-year treasury, to be reset every 5 years at 3.5% above 5-year treasury. The loan is secured by a first mortgage on the Company’s Atmore, Alabama and Roanoke, Alabama facilities.
Effective October 29, 2020, the Company entered into a $15,000 principal amount USDA Guaranteed term loan with the Greater Nevada Credit Union as lender. The term of the loan is 10 years and bears interest at a minimum 5.00% rate or 4.00% above 5-year treasury, to be reset after 5 years at 3.5% above 5-year treasury. Payments on the loan are interest only over the first three years and principal and interest over the remaining seven years. The loan is secured by a first lien on a substantial portion of the Company’s machinery and equipment and a second lien on the Company’s Atmore and Roanoke facilities.
Debt Covenant Compliance and Liquidity Considerations
The Company's agreements for its Revolving Credit Facility and its term loans include certain compliance, affirmative, and financial covenants and, as of the reporting date, the Company is in compliance with or has received waivers for all such applicable financial covenants. In the Company's self-assessment of going concern, with reflection on the Company's operating losses in 2024 and 2023, the Company considered its future ability to comply with the financial covenants in its existing debt agreements. Topic 205 requires Company management to perform a going concern self-assessment each annual and interim reporting period. In performing its evaluation, management considered known and reasonably knowable information as of the reporting date. The Company also considered the significant unfavorable impact if it were unable to maintain compliance with financial covenants by its primary lenders. As part of the evaluation, the Company considered the cost reductions implemented under its East Coast Consolidation Plan, the return from the elimination of cash discounts, lower planned sample investments and cost savings expected to be generated from the operations of the Company's extrusion equipment. The financial statements do not include any adjustments that might result from the outcome of the uncertainty of the ability to maintain compliance with the financial covenants. The Company's Senior Secured Revolving Credit Facility matures on October 30, 2025.
The Company is considering options to replace its senior debt, but there can be no assurance that the Company will be able to extend or replace its senior debt or that other supplemental financing or other sources of funding can be obtained or will be obtained on terms favorable to the Company.
Notes Payable - Other
On January 14, 2019, the Company, entered into a purchase and sale agreement (the “Purchase and Sale Agreement”) with Saraland Industrial, LLC, an Alabama limited liability company (the “Purchaser”). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its Saraland facility, and approximately 17.12 acres of surrounding property located in Saraland, Alabama (the “Property”) to the Purchaser for a purchase price of $11,500. Concurrent with the sale of the Property, the Company and the Purchaser entered into a twenty-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of $977, subject to annual rent increases of 1.25%. Under the Lease Agreement, the Company has two (2) consecutive options to extend the term of the Lease by ten years for each such option. This transaction was recorded as a failed sale and leaseback. The Company recorded a liability for the amounts received, will continue to depreciate the asset, and has imputed an interest rate of 7.07% so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the twenty-year lease term.
On September 15, 2023, the Company modified a note payable on equipment which had previously been recorded as a failed sale and leaseback. The note payable bears interest at 7.84% and matures on December 1, 2024.
The Company's other financing notes have terms up to 1 year, bear interest ranging from 6.34% to 6.50% and are due in monthly installments through their maturity dates. The Company's other notes do not contain any financial covenants.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Finance Lease Obligations
The Company's finance lease obligations are due in monthly installments through their maturity dates. The Company's finance lease obligations are secured by the specific equipment leased.
NOTE 10 - LEASES
Leases as Lessee
Balance sheet information related to right-of-use assets and liabilities is as follows:
| | | | | | | | | | | | | | |
| Balance Sheet Location | September 28, 2024 | | December 30, 2023 |
Operating Leases: | | | | |
Operating lease right-of-use assets | Operating lease right-of-use assets | $ | 26,466 | | | $ | 28,962 | |
| | | | |
Current portion of operating lease liabilities | Current portion of operating lease liabilities | $ | 3,863 | | | $ | 3,654 | |
Noncurrent portion of operating lease liabilities | Operating lease liabilities | 23,221 | | | 25,907 | |
Total operating lease liabilities | | $ | 27,084 | | | $ | 29,561 | |
| | | | |
Finance Leases: | | | | |
Finance lease right-of-use assets | Property, plant, and equipment, net | $ | 127 | | | $ | 138 | |
| | | | |
Current portion of finance lease liabilities | Current portion of long-term debt | $ | 25 | | | $ | 29 | |
Noncurrent portion of finance lease liabilities | Long-term debt | 83 | | | 102 | |
Total financing lease liabilities | | $ | 108 | | | $ | 131 | |
Lease cost recognized in the consolidated condensed financial statements is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
Operating lease cost | $ | 1,433 | | | $ | 1,032 | | | $ | 4,370 | | | $ | 3,100 | |
| | | | | | | |
Finance lease cost: | | | | | | | |
Amortization of lease assets | $ | 4 | | | $ | 53 | | | $ | 11 | | | $ | 140 | |
Interest on lease liabilities | 2 | | | 2 | | | 6 | | | 8 | |
Total finance lease costs | $ | 6 | | | $ | 55 | | | $ | 17 | | | $ | 148 | |
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
Other supplemental information related to leases is summarized as follows:
| | | | | | | | | | | | | | |
| | September 28, 2024 | | September 30, 2023 |
Weighted average remaining lease term (in years): | | | | |
Operating leases | | 6.55 | | 5.95 |
Finance leases | | 3.92 | | 4.52 |
| | | | |
Weighted average discount rate: | | | | |
Operating leases | | 6.81 | % | | 6.40 | % |
Finance leases | | 6.69 | % | | 6.64 | % |
| | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 4,348 | | | $ | 3,073 | |
Operating cash flows from finance leases | | 6 | | | 8 | |
Financing cash flows from finance leases | | 23 | | | 248 | |
The following table summarizes the Company's future minimum lease payments under non-cancellable contractual obligations for operating and financing liabilities as of September 28, 2024:
| | | | | | | | | | | |
Fiscal Year | | Operating Leases | Finance Leases |
Remaining for 2024 | | $ | 1,441 | | $ | 8 | |
2025 | | 5,473 | | 31 | |
2026 | | 5,188 | | 31 | |
2027 | | 5,358 | | 34 | |
2028 | | 5,334 | | 19 | |
Thereafter | | 11,348 | | — | |
Total future minimum lease payments (undiscounted) | | 34,142 | | 123 | |
Less: Present value discount | | 7,058 | | 15 | |
Total lease liability | | $ | 27,084 | | $ | 108 | |
Leases as Lessor
The Company leases or subleases to third parties certain excess space in its facilities, which are included as fixed assets. The leases are accounted for as operating leases and the lease or sublease income is included in other operating (income) expense, net. The Company recognizes lease income on a straight-line basis as collectability is probable, including any escalation or lease incentives, as applicable, and the Company continues to recognize the underlying asset. The Company has elected the practical expedient to combine all non-lease components as a combined component. The nature of the Company’s sublease agreements do not provide for variable lease payments, options to purchase, or extensions.
Lease income and sublease income related to fixed lease payments recognized in the consolidated condensed financial statements is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
Operating lease income | | $ | 462 | | | $ | 267 | | | $ | 1,259 | | | $ | 329 | |
| | | | | | | | |
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
The following table summarizes the Company's undiscounted lease payments to be received under operating leases including amounts to be paid by the Company to the head lessor for the next five years and thereafter as of September 28, 2024:
| | | | | | | | | | | |
Fiscal Year | Gross Lease Payments | Payments to Head Lessor | Net Lease Payments |
2024 | $ | 411 | | $ | 91 | | $ | 320 | |
2025 | 2,364 | | 421 | | 1,943 | |
2026 | 2,411 | | 430 | | 1,981 | |
2027 | 2,460 | | 438 | | 2,022 | |
2028 | 2,509 | | 447 | | 2,062 | |
Thereafter | 14,143 | | 2,730 | | 11,413 | |
Total | $ | 24,298 | | $ | 4,557 | | $ | 19,741 | |
In the third quarter of 2024, the Company signed a sublease agreement for 370,000 square feet of warehouse space in its leased facility in Saraland, Alabama. The lease is a ten year lease at a gross lease value of $23,296, excluding certain required landlord payments. This lease replaces the existing five year subleases of 200,000 total square feet in our Saraland, Alabama facility.
NOTE 11 - FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange value of an asset or a liability in an orderly transaction between market participants. The fair value guidance outlines a valuation framework and establishes a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and disclosures. The hierarchy consists of three levels as follows:
Level 1 - Quoted market prices in active markets for identical assets or liabilities as of the reported date;
Level 2 - Other than quoted market prices in active markets for identical assets or liabilities, quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and other than quoted prices for assets or liabilities and prices that are derived principally from or corroborated by market data by correlation or other means; and
Level 3 - Measurements using management's best estimate of fair value, where the determination of fair value requires significant management judgment or estimation.
The carrying amounts and estimated fair values of the Company's financial instruments are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 28, 2024 | | December 30, 2023 |
| Carrying | | Fair | | Carrying | | Fair |
| Amount | | Value | | Amount | | Value |
Financial assets: | | | | | | | |
Cash and cash equivalents | $ | 1,053 | | | $ | 1,053 | | | $ | 79 | | | $ | 79 | |
| | | | | | | |
Financial liabilities: | | | | | | | |
Long-term debt, including current portion | $ | 86,305 | | | $ | 84,696 | | | $ | 82,389 | | | $ | 79,225 | |
Finance leases, including current portion | 108 | | | 109 | | | 131 | | | 130 | |
| | | | | | | |
The fair values of the Company's long-term debt and finance leases were estimated using market rates the Company believes would be available for similar types of financial instruments and represent level 2 measurements. The fair values of cash and cash equivalents approximate their carrying amounts due to the short-term nature of the financial instruments.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 12 - EMPLOYEE BENEFIT PLANS
Defined Contribution Plans
The Company sponsors a 401(k) defined contribution plan that covers approximately 98% of the Company's current associates. This plan includes a mandatory Company match on the first 1% of participants' contributions. The Company matches the next 2% of participants' contributions if the Company meets prescribed earnings levels. The plan also provides for additional Company contributions above the 3% level if the Company attains certain additional performance targets. Matching contribution expense for this 401(k) plan was $92 and $63 for the three months ended September 28, 2024 and September 30, 2023, respectively and $277 and $230 for the nine months ended September 28, 2024 and September 30, 2023, respectively.
Additionally, the Company sponsors a 401(k) defined contribution plan that covers associates at one facility who are under a collective-bargaining agreement. The number of associates under the plan represents approximately 2% of the Company's total current associates. Under this plan, the Company generally matches participants' contributions, on a sliding scale, up to a maximum of 2.75% of the participant's earnings. Matching contribution expense for the collective-bargaining 401(k) plan was $1 and $2 for the three months ended September 28, 2024 and September 30, 2023, respectively and $3 and $8 for the nine months ended September 28, 2024 and September 30, 2023, respectively.
Non-Qualified Retirement Savings Plan
The Company sponsors a non-qualified retirement savings plan that allows eligible associates to defer a specified percentage of their compensation. The obligations for continuing operations owed to participants under this plan were $16,142 at September 28, 2024 and $14,289 at December 30, 2023 and are included in other long-term liabilities in the Company's consolidated condensed balance sheets. The obligations are unsecured general obligations of the Company and the participants have no right, interest or claim in the assets of the Company, except as unsecured general creditors. The Company utilizes a Rabbi Trust to hold, invest and reinvest deferrals and contributions under the plan. Amounts are invested in Company-owned life insurance in the Rabbi Trust and the cash surrender value of the policies for continuing operations was $16,142 at September 28, 2024 and $14,836 at December 30, 2023 and is included in other assets in the Company's consolidated condensed balance sheets.
Multi-Employer Pension Plan
The Company contributes to a multi-employer pension plan under the terms of a collective-bargaining agreement that covers its union-represented employees. Expenses related to the multi-employer pension plan were $7 and $6 for the three months ended September 28, 2024 and September 30, 2023, respectively and $20 and $16 for the nine months ended September 28, 2024 and September 30, 2023, respectively. If the Company were to withdraw from the multi-employer plan, a withdrawal liability would be due, the amount of which would be determined by the plan. The withdrawal liability, as determined by the plan, would be a function of contribution rates, fund status, discount rates and various other factors at the time of any such withdrawal.
NOTE 13 - INCOME TAXES
TE 13 - INCOME TAXES
The effective benefit tax rate for the three months ending September 28, 2024 was (0.11)% and the effective tax rate for the nine months ending September 28, 2024 was 0.30%, compared with a effective income tax rate of 6.00% and 3.04% for the three and nine months ending September 30, 2023, respectively. Because the Company maintains a full valuation allowance against its deferred income tax balances, the Company is only able to recognize refundable credits and a small amount of state taxes in the tax expense for the three and nine months of 2024. The Company is in a net deferred tax liability position of $91 and $91 at September 28, 2024 and December 30, 2023, respectively, which is included in other long-term liabilities in the Company's consolidated condensed balance sheets.
The Company accounts for uncertainty in income tax positions according to FASB guidance relating to uncertain tax positions. Unrecognized tax benefits were $556 and $555 at September 28, 2024 and December 30, 2023, respectively. Such benefits, if recognized, would affect the Company's effective tax rate. There were no significant interest or penalties accrued as of September 28, 2024 and December 30, 2023.
The Company and its subsidiaries are subject to United States federal income taxes, as well as income taxes in a number of state jurisdictions. The tax years subsequent to 2020 remain open to examination for U.S. federal income taxes. The majority of state jurisdictions remain open for tax years subsequent to 2020. A few state jurisdictions remain open to examination for tax years subsequent to 2019.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 14 - EARNINGS (LOSS) PER SHARE
The Company's unvested stock awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are considered participating securities and are included in the computation of earnings (loss) per share. Accounting guidance requires additional disclosure of earnings (loss) per share for common stock and unvested share-based payment awards, separately disclosing distributed and undistributed earnings. Undistributed earnings represent earnings that were available for distribution but were not distributed. Common stock and unvested share-based payment awards earn dividends equally. All earnings were undistributed in all periods presented.
The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
Basic loss per share: | | | | | | | |
Loss from continuing operations | $ | (3,729) | | | $ | (2,211) | | | $ | (5,473) | | | $ | (5,382) | |
Less: Allocation of earnings to participating securities | — | | | — | | | — | | | — | |
Loss from continuing operations available to common shareholders - basic | $ | (3,729) | | | $ | (2,211) | | | $ | (5,473) | | | $ | (5,382) | |
Basic weighted-average shares outstanding (1) | 14,455 | | | 14,824 | | | 14,733 | | | 14,769 | |
Basic loss per share - continuing operations | $ | (0.26) | | | $ | (0.15) | | | $ | (0.37) | | | $ | (0.36) | |
| | | | | | | |
Diluted loss per share: | | | | | | | |
Loss from continuing operations available to common shareholders - basic | $ | (3,729) | | | $ | (2,211) | | | $ | (5,473) | | | $ | (5,382) | |
Add: Undistributed earnings reallocated to unvested shareholders | — | | | — | | | — | | | — | |
Loss from continuing operations available to common shareholders - basic | $ | (3,729) | | | $ | (2,211) | | | $ | (5,473) | | | $ | (5,382) | |
Basic weighted-average shares outstanding (1) | 14,455 | | | 14,824 | | | 14,733 | | | 14,769 | |
Effect of dilutive securities: | | | | | | | |
Stock options (2) | — | | | — | | | — | | | — | |
Directors' stock performance units (2) | — | | | — | | | — | | | — | |
Diluted weighted-average shares outstanding (1)(2) | 14,455 | | | 14,824 | | | 14,733 | | | 14,769 | |
Diluted loss per share - continuing operations | $ | (0.26) | | | $ | (0.15) | | | $ | (0.37) | | | $ | (0.36) | |
(1)Includes Common and Class B Common shares, excluding unvested participating securities of 906 thousand as of September 28, 2024 and 732 thousand as of September 30, 2023.
(2)Shares issuable under stock option plans where the exercise price is greater than the average market price of the Company's Common Stock during the relevant period and directors' stock performance units have been excluded to the extent they are anti-dilutive. There were 487 thousand and 574 thousand aggregate shares excluded for the three and nine months ended September 28, 2024 and September 30, 2023, respectively.
NOTE 15 - STOCK-BASED COMPENSATION EXPENSE
The Company recognizes compensation expense relating to share-based payments based on the fair value of the equity instrument issued and records such expense in selling and administrative expenses in the Company's consolidated condensed statements of operations. The Company's stock compensation expense was $119 and $182 for the three months ended September 28, 2024 and September 30, 2023, respectively and $378 and $550 for the nine months ended September 28, 2024 and September 30, 2023, respectively.
On March 12, 2024, the Company issued 411,537 shares of restricted stock to certain key employees. The grant-date fair value of the awards was $251, or $0.61 per share, and is expected to be recognized as stock compensation expense over a weighted-average period of 5.0 years from the date the awards were granted. Each award is subject to a continued service condition. The fair value of each restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.
On May 1, 2024, the Company issued 32,000 shares of restricted stock to the Company's non-employee directors. The grant-date fair value of the awards was $17, or $0.52 per share, and is expected to be recognized as stock compensation expense over a weighted-average period of 1.0 year from the date the awards were granted. Each award is subject to a continued
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
service condition. The fair value of each restricted stock awarded was equal to the market value of a share of the Company's Common Stock on the grant date.
NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Components of accumulated other comprehensive income, net of tax, are as follows:
| | | | | | | | | |
| | | Post-Retirement Liabilities | | |
Balance at December 30, 2023 | | | $ | 268 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Reclassification of net actuarial gain into earnings from postretirement benefit plans | | | (15) | | | |
| | | | | |
Balance at September 28, 2024 | | | $ | 253 | | | |
NOTE 17 - COMMITMENTS AND CONTINGENCIES
Contingencies
The Company assesses its exposure related to legal matters, including those pertaining to product liability, safety and health matters and other items that arise in the regular course of its business. If the Company determines that it is probable a loss has been incurred, the amount of the loss, or an amount within the range of loss, that can be reasonably estimated will be recorded. The Company has not identified any legal matters that could have a material adverse effect on its consolidated condensed results of operations, financial position or cash flows.
Legal Proceedings
The Company has been sued together with 15 other defendants in a civil action filed January 22, 2024, in the Superior Court of Gordon County Georgia. The case is styled: Moss Land Company, LLC and Revocable Living Trust of William Darryl Edwards, by and through William Darryl Edwards, Trustee vs. City of Calhoun et al. Civil Action Number 24CV73929. The plaintiffs are two landowners located in Gordon County Georgia. The relief sought is compensation for alleged damages to the plaintiffs’ real property, an injunction from alleged further damage to their property and abatement of alleged nuisance related to the presence of PFAS and related chemicals on their property. The Plaintiffs allege that such chemicals have been deposited on their property by the City of Calhoun as a byproduct of treating water containing such chemicals used by manufacturing operations in and around Calhoun Georgia. The defendants include the City of Calhoun Georgia, several other carpet manufacturers, and certain manufacturers and sellers of chemicals containing PFAS. No specific amount of damages has been demanded. The Company has denied liability and is vigorously defending the matter.
On March 1, 2024, the City of Calhoun Georgia served an answer and crossclaim for Damages and injunctive relief in the pending matter styled: In re: Moss Land Company, LLC and Revocable living Trust of William Darryl Edwards by and through William Darryl Edwards, Trustee v. The Dixie Group, Inc. In the Superior Court of Gordon County Georgia, case Number: 24CV73929. In its Answer and Crossclaim defendant Calhoun sues The Dixie Group, Inc. and other named carpet manufacturing defendants for unspecified monetary damages and other injunctive relief based on injury claimed to have resulted from defendant’s use and disposal of chemical wastewater containing PFAS chemicals. The Company has filed an answer denying liability and is vigorously defending the matter.
On May 7, 2024, the Company was sued, together with 15 other named defendants, in a matter styled William Hartwell Brooks, et al v the City of Calhoun Georgia, In the Superior Court of Gordon County Georgia, civil action number 24CV74289. The case seeks unspecified monetary and other damages alleged to have been suffered by plaintiffs as landowners by the discharge of PFAS chemicals in proximity to or directly adjacent to their properties. The Company has filed an answer denying liability and is vigorously defending the matter.
Environmental Remediation
The Company accrues for losses associated with environmental remediation obligations when such losses are probable and estimable. Remediation obligations are accrued based on the latest available information and are recorded at undiscounted amounts. The Company regularly monitors the progress of environmental remediation. If studies indicate that the cost of remediation has changed from the previous estimate, an adjustment to the liability would be recorded in the period in which such determination is made (see Note 20).
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 18 - OTHER (INCOME) EXPENSE, NET
Other operating (income) expense, net is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
Other operating (income) expense, net: | | | | | | | |
Gain on property, plant and equipment disposals | $ | — | | | $ | — | | | $ | (37) | | | $ | (1) | |
(Income) loss on currency exchanges | 9 | | | (7) | | | 94 | | | 35 | |
| | | | | | | |
Retirement expense | 37 | | | 63 | | | 104 | | | 176 | |
| | | | | | | |
| | | | | | | |
Insurance proceeds | — | | | — | | | (161) | | | (246) | |
Lease income | (462) | | | (267) | | | (1,259) | | | (329) | |
Lease expenses | 599 | | | — | | | 1,414 | | | — | |
Miscellaneous (income) expense | 10 | | | 64 | | | (14) | | | 52 | |
Other operating (income) expense, net | $ | 193 | | | $ | (147) | | | $ | 141 | | | $ | (313) | |
The Company allocates expenses associated with the leases to other operating expense. Included in other income, net for the three and nine months ended September 30, 2023 was a gain of $625 related to an extinguishment of a debt arrangement.
NOTE 19 - FACILITY CONSOLIDATION AND SEVERANCE EXPENSES, NET
2022 Consolidation of East Coast Manufacturing Plan
During 2022, the Company implemented a plan to consolidate its East Coast manufacturing in order to reduce its manufacturing costs. Under this plan, the Company consolidated its East Coast tufting operations into one plant in North Georgia, relocated the distribution of luxury vinyl flooring from its Saraland, Alabama facility to its Atmore, Alabama facility and identified space in its Saraland, Alabama and Atmore, Alabama facilities as available for lease or sublease. Costs for the plan include machinery and equipment relocation, inventory relocation, staff reductions and unabsorbed fixed costs during conversion of the Atmore facility.
Costs related to the facility consolidation plans are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | As of September 28, 2024 | |
| Accrued Balance at December 30, 2023 | | 2024 Expenses To Date (1) | | 2024 Cash Payments | | Accrued Balance at September 28, 2024 | | Total Costs Incurred To Date | | Total Expected Costs | |
Consolidation of East Coast Manufacturing Plan | $ | 36 | | | $ | 326 | | | $ | 359 | | | $ | 3 | | | $ | 8,041 | | | $ | 8,135 | | |
| | | | | | | | | | | | |
Asset Impairments/Non-Cash Items | $ | — | | | $ | 446 | | | $ | — | | | $ | — | | | $ | 2,163 | | | $ | 2,301 | | |
| | | | | | | | | | | | |
| Accrued Balance at December 31, 2022 | | 2023 Expenses To Date (1) | | 2023 Cash Payments | | Accrued Balance at September 30, 2023 | | | | | |
Consolidation of East Coast Manufacturing Plan | $ | 1,011 | | | $ | 2,320 | | | $ | 3,271 | | | $ | 60 | | | | | | |
| | | | | | | | | | | | |
Asset Impairments/Non-Cash Items | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | | |
(1) Costs incurred under these plans are classified as "facility consolidation and severance expenses, net" in the Company's consolidated
condensed statements of operations.
THE DIXIE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(amounts in thousands, except per share data) (Continued)
NOTE 20 - DISCONTINUED OPERATIONS
The Company has either sold or discontinued certain operations that are accounted for as "Discontinued Operations" under applicable accounting guidance. Discontinued operations are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
Loss from discontinued operations: | | | | | | | |
Workers' compensation costs from former textile operations | $ | (33) | | | $ | (11) | | | $ | (96) | | | $ | (56) | |
Environmental remediation costs from former textile operations | — | | | (21) | | | — | | | (50) | |
Commercial business operations | (149) | | | (173) | | | (233) | | | (438) | |
Loss from discontinued operations, before taxes | $ | (182) | | | $ | (205) | | | $ | (329) | | | $ | (544) | |
Income tax benefit | — | | | (22) | | | — | | | (48) | |
Loss from discontinued operations, net of tax | $ | (182) | | | $ | (183) | | | $ | (329) | | | $ | (496) | |
Workers' compensation costs from former textile operations
Undiscounted reserves are maintained for the self-insured workers' compensation obligations related to the Company's former textile operations. These reserves are administered by a third-party workers' compensation service provider under the supervision of Company personnel. Such reserves are reassessed on a quarterly basis. Pre-tax cost incurred for workers' compensation as a component of discontinued operations primarily represents a change in estimate for each period from unanticipated medical costs associated with the Company's obligations.
Environmental remediation costs from former textile operations
Reserves for environmental remediation obligations are established on an undiscounted basis. The Company has an accrual for environmental remediation obligations related to discontinued operations of $2,176 as of September 28, 2024 and $2,205 as of December 30, 2023. The liability established represents the Company's best estimate of possible loss and is the reasonable amount to which there is any meaningful degree of certainty given the periods of estimated remediation and the dollars applicable to such remediation for those periods. The actual timeline to remediate, and thus, the ultimate cost to complete such remediation through these remediation efforts, may differ significantly from the Company's estimates. Pre-tax cost for environmental remediation obligations classified as discontinued operations were primarily a result of specific events requiring action and additional expense in each period.
Commercial business operations
In accordance with the Asset Purchase Agreement dated September 13, 2021, the Company sold assets that included certain inventory, certain items of machinery and equipment used exclusively in the Commercial Business, and related intellectual property. Additionally, the Company agreed not to compete with the specified commercial business and the Atlas|Masland markets for a period of 5 years following September 13, 2021. The agreement allowed for the Company to sell the commercial inventory retained by the Company after the divestiture.
The Company reclassified the following assets and liabilities for discontinued operations in the accompanying consolidated condensed balance sheets:
| | | | | | | | | | | |
| September 28, 2024 | | December 30, 2023 |
Current Assets of Discontinued Operations: | | | |
Receivables, net | $ | 142 | | | $ | 158 | |
Inventories, net | 57 | | | 107 | |
Current Assets Held for Discontinued Operations | $ | 199 | | | $ | 265 | |
| | | |
Long Term Assets of Discontinued Operations: | | | |
Property, plant and equipment, net | $ | 176 | | | $ | 176 | |
Other assets | 1,207 | | | 1,138 | |
Long Term Assets Held for Discontinued Operations | $ | 1,383 | | | $ | 1,314 | |
| | | |
Current Liabilities of Discontinued Operations: | | | |
Accounts payable | $ | 127 | | | $ | 128 | |
Accrued expenses | 922 | | | 1,009 | |
Current Liabilities Held for Discontinued Operations | $ | 1,049 | | | $ | 1,137 | |
| | | |
Long Term Liabilities of Discontinued Operations: | | | |
Other long term liabilities | $ | 3,620 | | | $ | 3,536 | |
Long Term Liabilities Held for Discontinued Operations | $ | 3,620 | | | $ | 3,536 | |
For the three and nine months ended September 28, 2024 and September 30, 2023, the Company reclassified the following operations of the Commercial business included in discontinued operations in the accompanying consolidated condensed statements of operations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 28, 2024 | | September 30, 2023 | | September 28, 2024 | | September 30, 2023 |
Net sales | $ | — | | | $ | 15 | | | $ | — | | | $ | 185 | |
Cost of sales | 149 | | | 31 | | | 299 | | | 423 | |
Gross profit | (149) | | | (16) | | | (299) | | | (238) | |
| | | | | | | |
Selling and administrative expenses | — | | | 102 | | | (66) | | | 150 | |
Other operating income, net | — | | | 55 | | | — | | | 50 | |
Loss from discontinued Commercial business operations | $ | (149) | | | $ | (173) | | | $ | (233) | | | $ | (438) | |